David Cameron has today urged businesses to give their staff a pay rise. Clearly the Government’s economic analysis is that with inflation low, increasing wages would give further fuel to UK plc’s growth at little risk.
That macroeconomic analysis may be correct, but I have to start my response by looking at the microeconomic picture – the costs and income that dictate the way that businesses are run. There are two problems for our sector with a strategy based on a hike in wages, and specifically in the National Minimum Wage.
Firstly, there are many thousands of small businesses in our sector who don’t employ staff, only family members. The people running these businesses are likely to be among the 55% of independent local shop owners who claim to be earning less than the National Minimum Wage themselves. I take these figures will a little salt – business owners may also be working for a capital gain when they sell their business – but the fact remains that there is a large group of retailers who work incredibly long hours and who could be better off being paid to work these hours by someone else. That’s not good for entrepreneurship.
Secondly, there are even more retailers employing staff and who want to grow their businesses by investing in more stores and more staff. As the costs of employment go up, so the return on these investments will get smaller and slower to realise, which means that entrepreneurs are less likely to make those investments. Retailers who already have a number of stores and staff are exposed to cost increases.
None of this is meant to counter the concerns of the low paid. Like many working people, those earning the National Minimum Wage will have seen their pay decline in real terms since 2010 (although it will have increased in real terms in the past couple of years). As with businesses, household costs fluctuate and it’s hard for many people to make ends meet. We shouldn’t try to move past these complex issues, particularly when the people in question are the staff who work hard every day in local shops.
That’s why we need an independent Low Pay Commission to make a proper annual assessment of the right rates for the National Minimum Wage. This process needs to take place without political interference or emotion.
